Analysis finds that the majority of ESG-focused funds are rebranded existing funds
When investors decide to focus on sustainable investing, they may feel content putting their money into funds that reflect ESG objectives.
But purists should know that what appears to be a purpose-driven investment vehicle is likely to have started out without those intentions according to a study by independent analysts Sustainable Research & Analysis (SRA).
Examining mutual funds and ETFs launched in the US, the analysis found that sustainable funds and related share classes grew by 2,180 to end the 2019 at 3,460, with another 777 added in the first three months of 2020.
Steve Schoepke, Director of Portfolio Analysis at SRA, states that the majority of these new offerings are the product of rebranding or "repurposing" of existing funds to reflect ESG objectives.
He believes that the practice will continue in the near term before the sector matures and rebranding initiatives increasingly emphasize a manager's in-house sustainable investment expertise and uniqueness.
Risk to reputation
Earlier this year, Financial Post investigative journalist Victor Ferreira told WP about the practice of “greenwashing”.
This is where an investment manager is seen as misleading investors into believing that a rebranded fund is managed in the interest of shareholder's values-based considerations, when it is not.
Without regulated definition for the term ESG, Ferreira said it is important for investors and their advisors to do their homework.
“It’s not just fund providers that have different definitions of ESG, investors themselves do to,” he said. “Each person is different so you’ve got to dig into every fund to determine what suits you and what suits your client.”
Meanwhile, Schoepke says that while rebranding may be a low-cost way for fund managers to attain product scale, those who are deemed to have greenwashed products are likely to suffer damage to the image of both the fund and the management company, with potential damage to investors’ trust.
